Cashflow Budgeting To Support Cashflow Forecasting

Hallo guys...

Like to meet you again... hopefully that all of you on your best condition and performance...

Today i like to share about financial matter related about How To Make Cash Forecasting to support your financial control and decision.   

Budget is usually identical to the maximum limit of Expenditure (Cash Out). But for myself it’s not enough to guide me doing the Financial Management System and such things, then I developed by taking the basic theory of Cash Flow (cash flow), called:

(Beginning Balance + Income) - Expenses = Ending Balance

I think that I can develop it to provide information of a Cash Prediction (Forecasting) that the Company will have if I have the current Cash Balance information, plus the Income Plan, minus the Expenditure Plan.

So this is the concept, first we have to know that there are 2 kind of budget, the Income Budget (Cash In = CI) and Expenditure Budget (Cash Out = CO).

To prepare this, I create an excel file templates for Finance Staff both in Head Office and Branch. I give the task to finance staff and Head Branch to create a budgeting list that consist of:

1. List of Expenditure(CO)

      a. Payment to Vendor according to the term of time, both cash and credit

      b. Asset purchase plan

      c. Daily operational expenses estimation

      d. Retained earnings plan (dividend)

      e. Loans payment / installment (pay for principal loan and interest)

      f. Unexpected expenditure (other cost & expense)

2. List of Income(CI)

      a. Sales Activity (both from Payment of Credit Sales and Cash Sales)

      b. Income from Investment

c. Income from Funding and Equity / Additional Capital (bank loans, investors, and capital owners)

Once the template file and the required data are ready, then next step is, entry the data in the template according to the category of CO and CI. It been entry by the time they will be realized (by date).

Note: The template consists of the Budget Side (left side) and the Realized Side (right side)

If the CI and CO have been "paired" in Excel, then there will be a difference total amount by dates, I call this as "Daily Surplus (Deficit) of Cashflow Budgeting" and I created a special column for that.

Next is a rather complicated process if we do not yet have an understanding of the use of a qualified Excel program. This process is to make a prediction of the End Cash Balance.

So here I am just going to share the concept:

If we entry the Real Cash Balance and then we add the Surplus (Deficit), we will get the Prediction of Budget Cash and also Budget of End Cash.I created excel to update it by using the “if” formula function.

From the concept, we can see any changes to Prediction of budget Cash Balance at the end of the month. With this data, I and the board of directors have valid material in making the necessary financial policies, and another benefit it’s show us when we have to make any change on financial plan.

In this case there are 2 possibilities:

1. No change of plan / financial policy

    No significant change so there is no need for adjustments

2. There is a change of plan / financial policy

    There will be a bad indication if the budgeting was not done by the time of the immediate changes.

Those bad indications may include several things:

1. Deficit on Daily Cash Balance

     There is a need to increase revenue plans or postpone some spending plans. But this is only fluctuating so it does not change the Budget globally.

2. Balance deficit on Monthly Cash Balance (global)

    There is a need for significant Budgeting changes due to the changing policy. For example, due to delays in the realization of sales, due to price reductions, delays in asset purchases, delays in receipt of loans etc.

So guys, I think that will be enough explanation.

Good luck and hopefully it will be useful for anyone who tries to develop it.

Thank you for your attentions